Nonlinear Autoregressive Distributed Lag Model Research Articles

Examining the Effects of Economic Policy Uncertainties on the Stock Market Index: Analysis by Nonlinear ARDL Method for G7 Countries

Uncertainties are important factors that influence the decisions made by societies. Economic uncertainties closely affect society’s consumption and investment behaviour. Rising stock markets increase investors’ confidence, resulting in more purchases and higher stock prices and, in this context, an increase in consumer spending. When stock prices decrease, company investments are also negatively affected as consumer spending declines. Thus, increases and decreases in stock prices affect the general economy as they affect business confidence and consumers. The study analyses the effect of uncertainty in economic policies on stock markets, leading to a decrease in investor confidence in the economy. Such effects in G7 countries were examined using the nonlinear autoregressive distributed lag (ARDL) model for the period 1998:M05–2020:M09. This method was able to capture symmetries and asymmetries in the relationship between economic policy uncertainties and the stock markets. The results showed that heightened uncertainty in economic policy in Japan has a significantly negative effect on the stock market index, but in Germany and Italy, it has a significantly positive effect. Rising interest rates have negatively affected the stock market index in the United States, Canada, Japan, Italy, and the United Kingdom. The increase in the industrial production index is positively related to the stock market index in the United States, Canada, Japan, Italy, and France. Additionally, uncertainties in economic policy have asymmetric impacts on the stock market index in the United States, Canada, Japan and Italy, and symmetrical impacts in Germany, France and the United Kingdom.

Asymmetric Analysis of the Impact of Foreign Capital Inflows on Economic Growth in Nigeria

Foreign capital inflows remain volatile and their impact on economic growth remains uncertain due to persistent challenges relating to policy inconsistence insufficient infrastructure and fluctuations in Global oil price. The volatility of these inflows posed challenges, raises concern on their impact on economic growth. This study examined the impact of foreign capital inflows on economic growth in Nigeria from 1990 – 2023.The variables of interest are real gross domestic product (RGDP), foreign direct investment (FDI), remittance (REM) foreign portfolio investment (FPI) official development assistance (ODA) external debt (ED) government expenditure on health (GEH) and government expenditure on education (GEE).This study employed a Nonlinear Autoregressive Distributed lag (NARDL) model and Granger causality test. The finding from the NARDL model showed that Foreign Direct Investment, Remittances, Official Development Aid, External Debt, government expenditure on health, and government expenditure on education all exhibit substantial impacts, with positive changes in these variables associated with increased economic growth, and negative changes leading to decreased economic growth in both short and long run period. The finding further revealed significant asymmetric impacts between Foreign Direct Investment, Remittances, Official Development Aid, government expenditure on health, and government expenditure on education with exception of External debt in the short run .This study recommends that to unlock Nigeria’s full growth potential, policymakers should boost absorptive capacity of the economy through improve infrastructure, security, and legal frameworks to effectively utilize incoming capital and accelerate sustainable economic growth. Furthermore, prioritize health and education spending to develop a skilled and healthy workforce, ultimately boosting domestic activity and productivity.

Supply, Demand and Asymmetric Adjustment of House Prices in Poland

Abstract In recent years, a lot of empirical effort has been made to search for potential nonlinear responses of house prices to various demand and supply factors. This paper examines Poland's heterogeneous regional housing market reactions to key economic variables from 2000 to 2022. The study raises two research questions related to the asymmetric adjustment of housing markets to selected demand and supply shocks. Firstly, we ask whether the house price adjustments to negative shocks are relatively minor (for example, during an economic downturn) when compared to positive shocks (prevalent in booming markets), mainly due to the loss aversion behavior theory and nominal rigidity of house prices. In particular, we test the hypothesis that house prices react more to positive impulses from supply and demand than negative ones. Secondly, we investigate whether market reactions are similar for large and small metropolitan markets. The second hypothesis posits that metropolitan housing markets adjust asymmetrically to demand and supply shocks based on the city size (population and housing stock in a given city). The study uses a nonlinear ARDL model to test the research hypotheses empirically. This paper provides new insights into the nonlinear reactions of house prices to exogenous shocks and adds to the limited empirical evidence from less developed economies.

Public Health Expenditure and Health Outcomes in Comoros: An Asymmetric Evidence Using Multiple Threshold Nonlinear ARDL Model

Public Health Expenditure and Health Outcomes in Comoros: An Asymmetric Evidence Using Multiple Threshold Nonlinear ARDL Model

Dynamics of Financial Development and Foreign Direct Investment on Nepal's Economic Growth: A NARDL Analysis

This study explores the asymmetric effects of financial development and foreign direct investment (FDI) on economic growth in Nepal, employing the nonlinear autoregressive distributed lag (NARDL) model. The analysis reveals significant asymmetries in the effects of FDI and financial broadening in the economy by distinguishing between positive and negative shocks, the outcome indicates that positive shocks in financial sector growth significantly boost the economy, while negative shocks have a less pronounced and statistically insignificant effect. Similarly, positive shocks in FDI positively influence GDP per capita growth, whereas negative shocks are statistically insignificant. The robustness of these findings shows stable model parameters. The study underscores the importance of proactive policy measures to harness the positive impacts of financial development and FDI, thereby fostering sustained economic growth in Nepal. These insights contribute to the broader literature by highlighting the need for asymmetric analysis in understanding the complex dynamics of financial development, FDI, and economic growth in developing economies.

The Symmetric and Asymmetric Impacts of Energy Consumption and Economic Growth on Environmental Sustainability

Climate change has emerged as a global challenge because of its threat to sustainable development goals. Fossil fuels and economic growth are responsible for pollution and, thus, for climate change. In this context, this study explored the environmental Kuznets curve hypothesis for the case of 17 MENA countries over the period of 1990–2020. It investigated the symmetric and asymmetric impact of energy consumption and economic growth on CO2 emissions by controlling for population density, trade openness, and FDI inflows using panel linear and nonlinear ARDL models. The robustness of the results was checked using the fully modified OLS and dynamic OLS methods. Moreover, the Dumitrescu–Hurlin panel causality test was employed to determine the directions of causality between the variables. Overall, the empirical results of both panel linear and nonlinear ARDL models validate the environmental Kuznets curve hypothesis for the selected sample of MENA countries. Economic growth leads to environmental degradation only in the long run, whereas a rise in energy consumption leads to an increase in pollution in both the short and long run. These results are confirmed by the fully modified OLS and dynamic OLS methods. The findings of the Dumitrescu–Hurlin panel causality test also indicate the existence of bidirectional causality between energy consumption and CO2 emissions and between economic growth and CO2 emissions. Therefore, policy makers in the MENA region should invest in clean technologies and accelerate the transition to renewable energies such solar energy, wind power, and hydropower to align with sustainable development goals.

Impact of environmental fiscal reforms on carbon emissions of EURO-4 countries: CS-NARDL approach

This study investigates the effects of the Environmental Fiscal Reforms (EFR) policy on carbon emissions of the top 4 economies of Europe, using annual time series data from 1995 to 2022. The study used a cross-sectional nonlinear autoregressive distributed lag (CS-NARDL) model to examine the relationship. Estimates claim that the variables have an asymmetric long-term and short-term relationship. The negative impacts of carbon taxes on carbon emissions prove that emissions are reduced when polluting activities are taxed. Fiscal policy instrument such as taxation changes the behaviour of the private sector by disincentivizing polluting activities. On the other hand, government expenditure on environmental protection encourages the private sector to embrace and invest in green technologies, decreasing carbon emissions. The ECM term is negative and statistically significant at a 1 percent significance level for CS-NARDL model, implying a stable long-run relationship between variables. It demonstrates that short-run disequilibrium converges to long-run equilibrium at a speed of 47.2 percent. The study also propels new insight into the effectiveness of EFR policy, showing that taxes act as a counter-incentive and expenditure as a positive policy intervention for reducing carbon emissions. EURO-4 countries set an example for policymakers worldwide by rebalancing their energy mix and expanding the use of cleaner alternative energy sources.

Exchange rate asymmetry and its impact on bilateral trade: Evidence from BCIM-EC countries using N-ARDL approach

The novelty of this study is to examine the asymmetric effect of the exchange rate on bilateral export and import between Bangladesh and its three trading partners in the Bangladesh-China-India-Myanmar Economic Corridor using nonlinear ARDL models from 1973 to 2022. After controlling income and structural breaks, the empirical findings confirm the asymmetric effects of exchange rates on the short-run and long-run export and import demand functions of Bangladesh. Furthermore, the impacts of the appreciation and depreciation of the Bangladeshi currency are heterogeneous for these three trading partners. For instance, the depreciation of the Bangladeshi currency increases exports to China and India while it decreases exports to Myanmar in the short run. However, the depreciation increases exports to India and Myanmar, and the appreciation also increases exports to China and India in the long-run. On the contrary, depreciation increases imports from China and Myanmar in the short-run, while it decreases imports from Myanmar in the long run. Only appreciation has significant negative effects on China and India. As a robustness measure, we exclude the COVID-19 period. However, it does not substantially change our main findings.

Effect of Remittances on Renewable Energy Consumption in India: Evidence from a Nonlinear Analysis

The flow of remittances is decisive in shaping India's economic and societal welfare. India is also one of the fastest-growing economies, and its energy demand has a determining impact on global energy consumption. Remittances are often seen as a crucial source of external finance for India and can play a decisive role in financing renewable energy generation projects. However, minimal exploration has been conducted on the issue of interrelationship between remittances and renewable energy consumption in India. The present study attempts to empirically test the impact of remittances on the level of consumption of renewable energy in India over the period 1990–2020, which, to the best of our knowledge, none of the previous studies has dealt with yet. The results of the nonlinear autoregressive distributed lag (NARDL) model show that a lagged negative shock of remittances positively and significantly impacts renewable energy consumption in India. The long-term result confirms that a negative shock of remittances significantly reduces renewable energy use. The reduction of remittances has a more significant impact than the increase of the same, implying the existence of an asymmetric impact of remittances over renewable energy consumption. One of the critical policy implications of these findings is that the government should promote policies that enhance the inflow of remittances as it would facilitate the use of renewable energy in India.

Effect of Exchange Rates and Information and Communication Technology on Indonesia’s Economic Growth

Foreign exchange rates as well as information and communication technology (ICT) are crucial in the global economy. Exchange rates affect trade balance, which influences gross domestic product (GDP) and economic growth. ICT also affects economic growth by reducing business transaction costs and increasing the income of investors and companies, stimulating national income and economic growth. This research examines the effect of exchange rate asymmetry and ICT on Indonesian economic growth, using annual time-series data on exchange rates, ICT usage (proxied by Internet, telephone, and mobile phone users), and economic growth (GDP from 1994 to 2018). The data were analyzed using a non-linear auto-regressive distributed lag model. The results show that the exchange rate exerts an asymmetric effect on long-term economic growth. ICT has short- and long-term positive effects on economic growth. According to the findings, the Indonesian government should stabilize the IDR/USD exchange rate through monetary policies to encourage economic growth. Monetary policy needs also to support IDR/USD exchange rate appreciation to enhance the trade balance, GDP, and economic growth. The economic growth of Indonesia, which is driven by ICT development, still needs to be sustained by the government initiating ICT development in cities and rural areas.

Effects of real effective exchange rate volatility on export earnings in Ethiopia: Symmetric and asymmetric effect analysis

The exchange rate is one of the key monetary policy instruments used to dictate the economy. However, the effect of exchange rate volatility on macroeconomic outcomes has been a subject of debate in previous research. Thus, this study examined the effects of real effective exchange rate (REER) volatility on Ethiopia's export earnings using quarterly data covering 2007 to 2021. The GARCH model is employed to estimate the volatility of the real effective exchange rate, and its effect is examined at the aggregate and disaggregate levels. Disaggregation is made at commodity and partner country levels. Besides these, the study also examined the symmetric and asymmetric effects of exchange rate volatility on the three categories of export earnings. To estimate the effects, both the linear autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) models are employed. The short-run ARDL result shows that the real effective exchange rate and its volatility affect export earnings only in a few cases. Real effective exchange rate appreciation is significant and reduces total export earnings and export earnings from vegetables, meat, and oilseed-related products. Similarly, exchange rate volatility reduces total export earnings and earnings from coffee, vegetables, and meat-related products. At the aggregate level, the NARDL result shows that exchange rate volatility has an asymmetric effect on total export earnings. Positive volatility reduces total export earnings, while negative volatility is not significant. At the commodity level, volatility also has an asymmetric effect on earnings from coffee and meat exports in the short run. However, in the long run, there is no asymmetric effect of exchange rate volatility on total and commodity-level export earnings. In terms of the country of destination, there is no strong evidence of the effect of real effective exchange rate appreciation and its volatility on export earnings. Thus, policies that stabilize the volatility of the exchange rate are needed in Ethiopia in order to enhance export earnings.

Moving toward environmental mitigation in Algeria: Asymmetric impact of fossil fuel energy, renewable energy and technological innovation on CO2 emissions

Algeria's recent economic shifts have caused its macroeconomic data to exhibit an abnormal distribution, requiring a nonlinear approach to examine the asymmetric impact of technological innovation (TI), fossil fuel energy (FFE), and renewable energy (RE) on CO2 emissions. This study employs the nonlinear autoregressive distributed lag (NARDL) model to analyze the asymmetric impact of these factors on CO2 emissions. Furthermore, Quantile Autoregressive Distributed Lag (QARDL) and Quantile Granger Causality (QGC) approaches are employed for robustness checks. The NARDL results indicate that positive shocks in TI decrease CO2 emissions, whereas negative shocks increase CO2 emissions. Positive shocks in RE also decrease CO2 emissions, while negative shocks have no effect. In contrast, positive shocks in FFE increase CO2 emissions, but negative shocks have an even stronger effect, resulting in almost double CO2 emissions over time. These findings confirm the presence of asymmetry, as positive and negative shocks in regressors clearly influence CO2 emissions in Algeria. Moreover, the results from the asymmetric causality analysis indicate that TI, RE, and FFE have a causal effect on CO2 emissions in Algeria. These results are consistent with the findings from the QARDL and QGC approaches. Therefore, it is crucial for Algeria to prioritize investment in sustainable technology and implement carbon-neutral energy policies to reduce its reliance on fossil fuel and encourage the use of cleaner energy sources. The shift towards a green energy sector requires policymakers to ensure that innovation aligns with development objectives.

ASYMMETRIC IMPACT OF DIFFERENT TYPES OF ROAD TRANSPORT ON ECONOMIC GROWTH IN THE SEHRADEGROUP COUNTRIES: AN EMPIRICAL ANALYSIS OF THE NARDL FRAMEWORK

The contemporary economy depends on an effective transportation system, and road haulage assumes a crucial function in fostering dynamic economic growth and commerce. This article aims to investigate the influence of various road transportation modes on economic growth in the Visegrad countries. In this study, the nonlinear autoregressive distributed lag (NARDL) model was employed to scrutinize the asymmetrical impact of various transport modes on GDP. We used quarterly data from 2004–2021 for the Visegrad countries. In addition, a Toda-Yamamoto test was performed to establish causality between variables. The study found evidence of differing impacts of transport modes on economic growth in the examined countries. Specifically, international, and cross-trade transport had a balanced effect on GDP growth, whereas cabotage and domestic transport had an imbalanced impact. The Toda-Yamamoto method's causality analysis results demonstrate bidirectional causality between freight work and GDP in both international and domestic transportation for the Czech Republic, Poland, and Poland's cross-trade. On the other hand, unidirectional causality was established for cross-trade in Hungary, Slovakia, and the Czech Republic. Based on the conducted estimation, it was deduced that the impact of specific transport modes on economic growth is uneven and reliant on both the transport mode and the country. The significant results obtained hold critical implications for economic policy, enabling the adaptation of strategies and regulations to foster growth based on variances in the influence of road transportation on the economy.

Remittances and environment quality: Asymmetric evidence from South Asia

Remittances are the largest sources of foreign funds and are critical for economic development in South Asia. However, they have been found to damage the environment by promoting the production and consumption of energy-intensive products and pose challenges for achieving Sustainable Development Goals (SDGs). Against this backdrop, this study examines the role of remittances in environmental degradation using a sample of five South Asian countries from 1990 to 2021. A non-linear multivariate panel ARDL (NARDL) model is applied to investigate the asymmetric long and short-run relationship between the two. Cointegration results suggest that there is a stable long-run relationship among the variables. Empirical findings indicate that positive remittance shocks impact environmental degradation, and adverse shocks have a favourable effect. The causality results show one-way causality from positive and negative shocks to environmental quality, supporting the asymmetric relationship. The control variables, such as trade, financial development, and energy consumption, exacerbate environmental degradation while FDI improves the environmental quality. For robustness, the study uses Ecological Footprints (EPF) as an alternative proxy for environmental quality and confirms the asymmetric long and short-run link between remittances and environmental quality. Based on the results, an integrated approach combining the development and environmental goals is recommended.

Market integration and asymmetric price transmission in selected domestic markets for major staple foods in Uganda

In this study, we examined the price transmission dynamics and market integration among domestic markets for Uganda’s major staple foods (matoke, maize, and beans) utilizing the Granger causality analysis, bounds test, Wald test for long- and short-run asymmetry, and the nonlinear ARDL model. Among the key findings, the causal order between wholesale and retail commodity prices flows unidirectionally forward from the wholesale to the retail level across all markets. Wholesale and retail prices for Uganda’s staple foods are interlinked in all markets, and spatially separated markets are also well integrated. The Wald test revealed asymmetric price transmission (APT) in speed alone for the pairs wholesale and retail prices of matoke in Kampala, and wholesale prices of matoke in Mbarara with Kampala retail prices, both APT in magnitude and APT in speed for the pairs wholesale and retail prices of beans in Kampala, wholesale and retail prices of maize in Masindi, and wholesale prices of beans in Masindi with wholesale and retail prices in Kampala. We also found that in the long run, retail prices respond more strongly to wholesale price increases than decreases, an implication of positive APT in the marketing supply chain of Uganda’s major staples. This may be linked to information asymmetry between traders and consumers, traders’ adjustment costs, production levels, inventory management, and the market power of retailers. We thus concluded that final consumers are more likely to experience an increase rather than a decrease in the prices of staples at the retail level, while retailers are more likely to benefit from price decreases at the wholesale level.

Evaluating the Symmetrical and Asymmetrical Linkage Between Gold Price and Indian Stock Market in the Presence of Structural Change

This article investigates the symmetrical and asymmetrical linkage between gold prices and the Indian stock market in the presence of structural breaks. The study covers a time frame from April 1993 to December 2019. The study employs both linear autoregressive distributed lag (ARDL) and non-linear ARDL (NLARDL) models. The major findings of the study are as follows: first, both the ARDL and NLARDL models indicate the co-movement of gold prices and the Indian stock market. Second, based on the long-run parameters of both the models, the long-run relationship between the variables could not be established. Third, short-run parameters show that positive shocks in gold prices depress the Indian stock market; however, negative shocks in gold prices have a positive but insignificant relationship with the Indian stock market. The asymmetric reaction of the Indian stock market will yield new insights for investors, fund managers, and policymakers.

Modelling of nonlinear asymmetric effects of changes in tourism on economic growth in an autonomous small-island economy

Abstract While a substantial body of empirical evidence exists supporting the tourism-led growth hypothesis, more limited evidence exists regarding the dynamics of the relationship between tourism and economic growth in the island context, with important questions remaining to be answered regarding the linearity and symmetry of the relationship. Policymakers would benefit greatly from such knowledge as they attempt to harness inbound tourism as an engine of economic growth. This study contributes to bridging this important gap in knowledge by investigating the dynamics of the relationship between tourism and GDP in Madeira, a small-island autonomous region of Portugal. The analysis employs an asymmetric nonlinear autoregressive distributed lag model, using data from 1976 to 2019. The results confirm unidirectional causality between tourism and GDP, thus corroborating the tourism-led growth hypothesis. The relationship is also found to be asymmetrical, where the retarding effect of falling tourism receipts is significantly stronger than the stimulus effect associated with increasing tourism receipts. Significant non-linear effects are also found in each adjustment pathway. In terms of policymaking, while this study confirms that investing in tourism can be an effective way of promoting economic growth, efforts should also be made to diversify both the tourism sector and the wider economy to reduce exposure to downside risks.

Asymmetric role of the informal sector on economic growth: Empirical investigation on a developing country

The role of the informal sector in economic growth still remains an issue of debate. This study contributes to resolving this by taking into account the asymmetric effect of the informal sector on economic growth. The study applies the Non-linear Autoregressive Distributed Lag (N-ARDL) model to capture the asymmetric relationship between the informal sector activity and economic growth for the period 1982–2018 in Bangladesh. The estimation of the N-ARDL model reveals that the informal sector asymmetrically affects the domestic output and economic growth in Bangladesh for both the short-run and the long run. The study has observed an asymmetrically larger effect on output and economic growth from the falling contribution of the informal sector. Urbanization and capital growth also contribute to an increase in economic growth. Therefore, proper incentives and careful policy measures are suggested to effectively diminish the prevalence of informality and promote its transition towards a more formalized framework.

The role of the tourism sector in creating direct employment in Mexico: evidence from linear and nonlinear ARDL frameworks

This paper analyzes the role of the tourism sector in creating direct employment in Mexico by measuring the output elasticity of tourism employment from both linear and nonlinear perspectives. Although using such elasticity is a common practice for calculating the impact of economic growth on employment, it has been neglected in the context of the tourism labor market. Using Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) models, this study analyzes the impact of both the quarterly indicator of tourism gross domestic product (GDP) and the multilateral real exchange rate on tourism employment from the first quarter of 2006 to the first quarter of 2021. The results of the linear models show that tourism employment is elastic to variations in tourism GDP. Conversely, the NARDL model illustrates that tourism employment is inelastic to both positive and negative changes in tourism GDP. However, the NARDL model also shows that tourism employment is resilient to the negative phases of growth in the sector, as it grows more during the expansive episodes than it is reduced during the contractive phases. Meanwhile, the models including the multilateral real exchange rate show that tourism employment positively responds to the depreciation of the Mexican peso.

The distortion in the EU feed market due to import constraints on genetically modified soy

Feed importers in some EU member states face constraints on imports of genetically modified (GM) soy, a practice that may compromise the interests of EU livestock farmers. Using the cases of Sweden and Austria, we analyzed price transmission in the soy supply chain originating from Brazil, applying an asymmetric non-linear auto-regressive distributed lag (ARDL) model to identify short-run and long-run asymmetries. The results revealed significant asymmetric effects in how positive and negative price changes are absorbed within the feed industry. Notably, increases in the cost of Brazilian soy swiftly affect the prices for EU farmers, while cost reductions fail to trigger corresponding price decreases. Consequently, stronger constraints on GM soy imports are likely to exacerbate the competitiveness challenges faced by livestock farmers, primarily due to their reliance on non-GM soy. This implies that the restrictions on GM imports need to be relaxed or that low-cost local protein alternatives need to be developed.